My top 3 stock market predictions for 2023

2022 has become bad year for stock markets around the world. The darling of the stock market over the past 10 years, US tech stocks, had a terrible year. This has resulted in a double-digit decline for both S&P 500 and Nasdaq Composite. But the FTSE 100 has a flat width.

Investors are now turning their attention to 2023. Could this be the year the stock market rebounds? Will growth stocks assert their dominance or will they continue to outperform? And what can a recession do to stock prices?

Inflation will cool

My first prediction is that inflation will decrease in 2023, especially in the second half of the year.

The Federal Reserve and the Bank of England (BoE) have repeatedly stated that their number one mission is to reduce inflation. The Fed in particular has been very aggressive with its interest rate policy.

The Fed Funds Rate, which is the same as the BoE’s base rate, has increased by almost 4% in 11 months. The terminal rate will be in the range of 5% next year. What we don’t know is how long the economy can last before something breaks.

What seems clear is that rising interest rates cause economic contraction. History shows that recessions never fail to reduce inflation.

US tech stocks fell again

I have for some time argued that technology stocks are in a bubble. Valuations may decline in 2022; unfortunately, I see no reason for optimism in 2023.

When the dotcom bubble began to burst in the early 2000s, the price-to-earnings ratio of tech stocks fell sharply. By 2001, the bubble had deflated. However, the market did not decline until 2002. Further declines were witnessed in stock prices at that time mostly driven by earnings shocks.

Today, we have the same set-up. A lot of froth has come out of the sector. The concern now is that the real pain in the real economy business will come at the expense of tech companies. We have seen what happened Amazon‘s stock price when it reported disappointing earnings earlier in the year.

One of the stocks that I am concerned about is Apple. Today, it trades at 22 times forward earnings. As consumer disposable income falls and relations between the US and China worsen, I expect income estimates to decline.

Gold will outperform the market

Despite my very bearish attitude towards the general stock market next year, I remain bullish on certain sectors.

Sign sentiment towards gold may be low, but I predict that it will rush to the safe-haven asset in the New Year.

The traditional 60:40 stock and bond portfolio has performed well in 2022. At the same time, we see gold steadily replacing US Treasuries as the preferred allocation among global central banks.

There are several ways I can gain access to the yellow metal. The preferred method is to buy shares in established gold mining companies. That way I will receive the dividend.

Two FTSE 350 Miner I especially like to think of it Fresno and Centamine. Both have witnessed heavy share prices this year, but only recently.